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FTX clients are ready to recover all funds lost in the collapse

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Customers of failed cryptocurrency exchange FTX are set to recover all the money they lost when the company collapsed in 2022 and receive interest on top of that, the company’s bankruptcy lawyers said Tuesday.

The announcement marked a milestone in the effort to recover the $8 billion in client assets that disappeared when FTX imploded virtually overnight, triggering a crisis in the cryptocurrency industry. Under a plan filed in federal bankruptcy court in Delaware, virtually all of FTX’s creditors, including hundreds of thousands of ordinary investors who used the exchange to buy and sell cryptocurrencies, would receive cash payments equivalent to 118% of the assets they had filed on FTX, lawyers said.

Those payments would come from a pool of assets that FTX lawyers put together in the 17 months after the exchange collapsed, lawyers said.

But the footage comes with a warning. The amount owed to customers was calculated based on the value of their holdings at the time of FTX’s bankruptcy in November 2022. This means customers will not reap the benefits of a recent surge in the cryptocurrency market that sent the Bitcoin price at a record high. A customer who lost a Bitcoin when FTX imploded, for example, would be entitled to less than $20,000, even though a Bitcoin is now worth more than $60,000.

It will take months for payments to begin. The plan must be approved by the federal judge overseeing FTX’s bankruptcy, John T. Dorsey.

However, a major recovery of customer money seemed unlikely when FTX collapsed after a run on deposits. Before its implosion, customers used FTX as a marketplace to buy and sell digital currencies and stored billions of dollars in cryptocurrencies on the platform.

After the implosion, FTX founder and CEO Sam Bankman-Fried resigned, handing control to John J. Ray III, a corporate turnaround veteran who oversaw Enron’s bankruptcy.

Mr. Bankman-Fried came later convicted of extensive fraud in which he diverted billions of dollars of client savings to finance venture capital investments, political donations and other expenses. He has been condemned to 25 years in prison in March.

After taking over as director, Mr. Ray described the company as the biggest mess had ever seen. But over the next few months, he and his team began the painstaking process of tracking down the missing assets.

Some of the recoveries stem from successful investments made by Bankman-Fried during her tenure at FTX. In 2021, the company had invested $500 million in artificial intelligence company Anthropic. The booming AI industry has made these stocks much more valuable. This year, Mr. Ray’s team sold about two-thirds of its stake in FTX for $884 million.

FTX also reached a settlement to recover more than $400 million Capital module, a hedge fund financed by Mr. Bankman-Fried. And FTX lawyers have filed lawsuits to recover funds from former company executives and others, including Bankman-Fried’s. parents.

Cryptocurrency experts have been expecting significant recoveries for months after the FTX bankruptcy. Some opportunistic investors they purchased bankruptcy claims from exchange clients for pennies on the dollar, hoping to profit when payments begin.

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